Forecasting the FX Market
Successful forex trading is about making accurate market movements. When you predict forex trends with accuracy on the market, this enables you to execute the most profitable trades.
Currency forecasting is essential if you want to determine the most accurate forex rates in the market. Currency forecasting falls in to two main categories: technical and fundamental analysis. Described as the antithesis of one another, they each take entirely different approaches to analysing the market.
Understanding Technical Analysis
This method of analysis relies on price history to forecast future price movements. Technical analysts carefully analyse forex charts and graphs in order to establish market pricing behaviour of a particular currency pair. By examining the patterns made from currency movements, this then enables them to establish the current market trends.
Since analysts started using technical analysis in the 17th century Europe, the process has dramatically evolved and is now straightforward to understand and perform. Once you learn the ropes, you can perform technical analysis across all financial markets, making it a very easy method of analysis. There are countless terms and jargon related to technical analysis as well as endless forex indicators.
Some of the most common technical indicators include:
- Bollinger Bands
- MACD (Moving Average Convergence Divergence)
- EMA (Exponential Moving Average)
- ADX (Average Directional Index)
- RSI (Relative Strength Index)
- Stochastic Oscillator
Technical analysts believe that the price never lies and assert that there is no need to analyse complex forex news or await the release of economic indicators. If a technician can successfully analyse the market, they can then generate a successful trade which results in notable profits.
Understanding Fundamental Analysis
Fundamental analysis takes a macro-analytical approach, analysing an economy’s:
- Financial health
- Relationship between imports and exports
- Inflation & interest rates
- Gross Domestic Product
To perform fundamental analysis, the trader must follow daily forex new and global market news and also remain afloat of the above-mentioned indicators. Once these indicators have been released, the trader then balances each of these factors against one another in order to analyse the condition of the currency and speculate its future movements against another currency.
Fundamental analysis is far more complex and long-winded when compared with technical analysis. Studying the economic health of two (or more) currencies takes a great deal of time, and it is essential that you are as quick as possible once economic data has been released as the markets can react incredibly quickly to the latest news releases.
Fundamental or Technical Analysis?
While both technical and fundamental analysis have their benefits, the fundamental approach is better for mid to long-term traders who want to make long-term market predictions. On the other hand, the technical approach is recommended for traders who prefer to execute short-term, individual trades.